Question

Question 1: When dropping a product line, the avoidable costs are which of the following:

1.The variable costs plus the direct fixed costs of the line

2.Only the variable costs of the line

3.Only the direct fixed costs of the line

4.The variable costs plus direct fixed costs plus common fixed costs of the line

Question 2: Which of the following will be considered relevant in an incremental analysis decision:

1.Unavoidable fixed cost

2.Opportunity cost

3.Sunk cost

4.Only variable cost can be considered relevant

A company manufactures computer monitors for a cost of $150. After selling thousands of monitors to customers, 100 screens were returned by customers. The company can refurbish (process) the monitors with a cost of $50 per monitor and sell it to customers for $140 per monitor. If the monitors are not refurbished, the company can sell them “as-is” to the Giant Screen Liquidators Company for $80 per monitor.

Required:

Should the company refurbish/process the returned monitors or just sell them “as-is”?

Question 3: In the previous example, when considering the company’s decision whether to refurbish the monitors or not, the cost of producing the monitors is:

1.Relevant

2.Necessarily fixed

3.Necessarily variable

4.Irrelevant

Question 4:

In the decision on the profit maximizing price the fixed costs:

1.Are Relevant Costs

2.Are Irrelevant costs

3.Do not affect net profit

4.Increase with the selling price

Question 5: Assume now the Chinese retail chain from the previous example also requests that the company will change the box in which the contacts are packaged to one that fits the Chinese market. The company estimates that designing the new box will cost $150,000 (a one-time cost) and it will also increase variable costs by $7 per box. Should the company still take the special order?

1.Yes

2.No

Please answer all questions above and briefly explain how you got to that answer. Thank you in advance.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Question 1: When dropping a product line, the avoidable costs are which of the following:
	1.The variable costs plus the direct fixed costs of the line
Question 2: Which of the following will be considered relevant in an incremental analysis decision:
	2.Opportunity cost
	$ 150 is Sunk Cost which is not relevant.
	if Company Refurbish, Net Income is $140-$50=$90
	If company do not refurbish, Net income is $80
	SO it should be refurbished.
Question 3: In the previous example, when considering the company’s decision whether to refurbish the monitors or not, the cost of producing the monitors is:
	4.Irrelevant
Question 4:	In the decision on the profit maximizing price the fixed costs:
	2.Are Irrelevant costs
Question 5	Not Complete.